IR35 draft is as bad as expected – but there’s still hope

The draft clauses for the Finance Bill were published earlier today, including those which relate to the dreaded off-payroll working rules. IPSE had called for a delay to implementation, along with a raft of other stakeholders such as the CBI. This would have been sensible for the following reasons:

It would have given businesses more time to understand these notoriously complex rules

It would have provided more time for the government to make good on its commitment to clarify the employment status rules upon which IR35 determinations hinge

It would have created an opportunity to undertake a full impact assessment of the effect of the rules in the public sector (where they have been in place since 2017)

It would have created the breathing space for the incoming Chancellor to consider alternatives to this complete mess

Unfortunately, but unsurprisingly, the current Chancellor has pushed ahead regardless. The hope, however, is that the next Chancellor, whoever that may be – ahem Sajid Javid, who has been making strongly pro-business noises – will take a different approach. IPSE will certainly be calling for them to do so and rethink this disastrous legislation.

The really, really disappointing clauses relate to the ‘client-led dispute resolution service’. The idea here is that where a contractor disagrees with the client’s IR35 determination, they can appeal to the client who will need to have in place some kind of process for handling such disputes. I am yet to meet an external stakeholder, expert or commentator who believes this will be anything other than a pointless, administratively burdensome merry-go-round that will do little to resolve any disputes. There should of course be an independent appeals route, as IPSE has called for, and will continue to call for, though it would require such huge resource it is unlikely to happen.

The small business exemption remains, which is good. However, IPSE called for a provision in the legislation requiring businesses wishing to rely on this exemption to have to let the supply chain and the contractor know that they are ‘small’. Such a requirement would have meant that if a contractor’s client is a small company, the client will have to let that contractor know the IR35 liability rests with them. For reasons that we don’t fully understand, the government has decided against including such a clause, which means there will be instances when contractors won’t know whether IR35 is something they need to worry about or not.

Clauses relating to the shifting liability and information flow through the supply chain will be studied very closely by in-house company lawyers. It’s unlikely that this will directly impact on contractors, but it’s very important and very complex for agencies, umbrellas and clients. Expect to hear more squabbles about this further up the chain.

There is still no provision for expenses, which is utterly outrageous, but expected. Nor is there anything which allows for pre-tax pension savings, although there is still scope for separate tax relief to be provided for that, which we will continue to push for.

IPSE’s final big concern, which hasn’t been addressed in the draft clauses, is around blanket assessments and the insufficient measures to guard against it. In our response to the consultation, IPSE called for a statutory requirement on clients to take reasonable care and then a definition what reasonable care looks like. IPSE believes ‘reasonable care’ means:

Assessing each engagement individually

Reviewing the contract and the working practices independently

Assessing all the factors that would be assessed at a Tax Tribunal

The draft legislation does not provide for this and although there is still a reasonable care clause, its true meaning is disputed and in truth it offers little protection to contractors fearing their client will be unable or unwilling to make an accurate IR35 determination for each and every one of their engagements.

In summary, there were no great shocks today, which is broadly speaking bad news. This is the legislation UK businesses hoped would never be published. It’s not law yet, and it is still possible it could be averted. The lifeline is the installation of a new team in No.11. IPSE will be pulling out all the stops to convince them that now is not the time to introduce this damaging legislation.